One of the nation’s top economists offered two predictions Wednesday that could well spell additional trouble for Democrats’ efforts to maintain control of Congress.
Speaking at a Monitor-sponsored breakfast for reporters, Mark Zandi, chief economist of Moody’s Analytics and co-founder of Economy.com, said he thought housing prices would continue to fall and that the unemployment rate “is going to drift higher. If it is 10 percent on Election Day, I am not sure I would be surprised.” The jobless rate was 9.5 percent in July.
Both home prices and the jobless rate are highly visible economic indicators, and incumbent parties tend to do poorly in elections when the unemployment rate is rising. Falling home prices make voters feel poorer – not a feeling that helps incumbents.
The latest reports underscore the economic weakness inherent in Mr. Zandi’s predictions. The Commerce Department reported Wednesday that orders for durable goods, when the volatile transportation sector is removed, fell at the steepest rate since January. In a separate report, the Commerce Department said that sales of new homes fell 12.4 percent in January to a seasonally adjusted annual rate of 276,000. That was the slowest pace on record.
“The housing market is double dipping,” Zandi said, “and I do think house prices will fall further.” He said he expects national home prices to fall an additional 5 percent as “foreclosure and short sales ... pick up.” On a national basis, home prices are down 30 percent after peaking in the first three months of 2006.
“In the very near term, the job market is weakening,” Zandi said. If the jobless rate does not approach 10 percent by election day, it will do so “certainly by early next year,” he said.
The eight million jobs the US economy lost in the recession will probably take five years to come back, Zandi said. "I do think we are going to get those 8 million jobs back," he said, but "certainly not next year."
But Zandi, who was an adviser to John McCain's presidential campaign, did offer some optimism about the economy’s longer term prospects, especially the potential for much larger US exports of equipment and services. “I firmly believe that once we get by the next six to 12 months we are going to get our groove back and we are going to be surprised at how well the economy is doing, not how poorly it is doing,” he said.